The Tell: U.S.-China talks in October won’t stop tariff hikes, but more progress could arrive in November, Morgan Stanley says

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Previous meetings between high-level trade negotiators haven’t resulted in much action, points out Morgan Stanley.

With Chinese negotiators scheduled to visit Washington in October, it would be natural to expect progress in the trade tensions the two sides are imposing on each other.

After all, the two countries have made a series of mini-concessions, from China buying more farm products to the U.S. delaying the implementation of threatened tariffs.

But analysts at Morgan Stanley say tariff increases scheduled to go into effect on Oct. 15 on $250 billion Chinese goods are likely to go ahead.

They point out that past meetings at the negotiator level have been followed by tariff increases, not de-escalation.

“It’s hard to know exactly why, but we suspect it’s because meetings have typically not resulted in material progress on the core disagreements between the U.S. and China on enforcement of a deal,” they said in a note to clients.

So what to expect? The analysts don’t expect a full deal anytime soon, though they say a “durable pause” is a possibility, with the two sides formalizing existing areas of agreement but deferring the core unresolved issues to future discussions.

The other possibilities are sustained escalation, or another “uncertain pause,” where the two sides make minor concessions and keeping talking.

Of the three scenarios, they view an uncertain pause, perhaps announced at the Asia-Pacific Economic Cooperation summit in mid-November, as most likely.

“We looked back at previous meetings and found that the ‘big pauses,’ although not long-lasting, happened after meetings when Donald Trump and Xi Jinping were in the same room,” they said.

As the trade talks ebb and flow, the S&P 500 SPX, +0.53%   has climbed 1.1% this quarter, while the Shanghai Composite SHCOMP, -0.92%   has slipped a little over 2%.